Investment companies, can borrow money to make additional investments. This is called 'gearing'. It lets the company execute a long-term plan or take advantage of a particularly attractive stock without having to sell existing investments.
The idea is that the additional investment makes enough money to pay off the loan and make a profit on top of that. If it works, the more the company borrows, the more profit it makes. If the investment fails, the more the company borrows, the more it loses. So the more an investment company borrows the more risky it is.
Not all investment companies use gearing. Many of those that do use modest levels. It’s a decision taken by the fund manager and the board of directors. The gearing policy of the company may change from time to time. It’s regularly reviewed by the board and manager.
